Canadian arm of weapons maker General Dynamics wins ‘biggie’ Saudi contract worth up to $13-billion

OTTAWA/WASHINGTON — U.S. weapons maker General Dynamics Corp has won a contract worth up to $13 billion for its Canadian division to build light-armoured vehicles for Saudi Arabia, in what Ottawa said was the largest advanced manufacturing export win in Canadian history.

General Dynamics said on Friday the 14-year contract for military and commercial vehicles and training and support services has a value of $10 billion, but could be worth about $13 billion if all options were exercised.

The company did not identify the customer, but Canadian Trade Minister Ed Fast issued a statement saying the vehicles would be sold to Saudi Arabia and would create and sustain 3,000 jobs each year in Canada.

Fast led trade missions to the Saudi kingdom in 2012 and 2013. The deal is facilitated by Canada’s international government-to-government contracting organization, the Canadian Commercial Corp.

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“The whole-of-government approach to export sales gives us a strategic advantage as we pursue international markets,” Danny Deep, vice president at General Dynamics Land Systems – Canada, said in a statement.

The Saudi order provides a huge shot in the arm for General Dynamics, whose combat systems business has seen declining revenues in recent years given the end of the war in Iraq and the U.S. reduction of troops in Afghanistan.

That’s a biggie

“That’s a biggie,” said Byron Callan, analyst with Capital Alpha Securities. “The Saudi order for light-armored vehicles is a clear positive for General Dynamics. It is confirmation not only of the 2014 guidance, but of a more stable combat systems outlook in 2015 and beyond.”

General Dynamics continues to bid for other international orders, including one from Morocco, he said.

General Dynamics’s chief executive, Phebe Novakovic, flagged the deal — without identifying the buyer — during the company’s earnings call last month and said she was confident that the contract would materialize in the first quarter after protracted negotiations.

At the time, she said a delay in the contract and a slowdown in spending by the U.S. Army had contributed to a $1.4 billion shortfall in revenues for General Dynamics’s combat systems sector in 2013. Revenues are slated to decline again in 2014, but far more modestly.

General Dynamics shares were up 1.7% at US$105.45 around midday on the New York Stock Exchange.

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